Friday, September 6, 2013

Bawitdaba with Economics #hashtag

I was listening to Kid Rock on NPR the other day when I realized that I was listening to Kid Rock on NPR. In my head, I'm picturing a Venn diagram with one circle labeled "People who listen to NPR" and the second circle labeled "People who Listen to Kid Rock." I am trying to figure out how small the overlap between those two circles is. In the podcast, Kid Rock and the hosts talk about the market failures related to concert tickets. Musicians sell their tickets for X. Scalpers swoop in and buy a bunch of tickets and then resell them for X+Y. In this market, fans are more than willing to pay X+Y, but only part of their money is going to the artist (the actual product they are buying). There is a substantial sum going to people who add no value to the product.

When I purchase a TV at the electronics store, there is an obvious margin for the store. They make a profit. However, I also benefit from buying from the store. I get the TV at the moment that I want it, without having to wait for shipping. I can buy accessories with the set easily. I can ask questions of the (sometimes) knowledgeable sales associates. If I am undecided about which product, I have the opportunity to get advice on which item would be a better choice. I can try the product before I buy it. If I have problems I can usually, easily return the item. When I buy a TV from a store, there are all sort of ways in which the product is improved. When I buy a ticket from a scalper, there is no value added. Instead, the scalper is just taking advantage of arbitrage. He was able to buy the ticket at a low price and sell it at a high price. He is like a hedge fund manager, but he doesn't even provide the benefit of risk aggregation.

You can read further or listen to the podcast. If you are interested in the topic. You can listen for my favorite moment in the podcast near the 13:16 mark when Kid Rock says, "...whatever the market dictates..." It's funny to hear him talking like an economist.

The article brought an interesting idea into my head. In the place of offering scholarships to students, U-M should just give away football and basketball tickets to students in need. It would probably be cheaper for the University and offer more benefits to the students.

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